Tesla: ‘Valuation Exceeds Fundamental Reasoning’

By Ben Levisohn

Yes, yes, Tesla Motors (TSLA) is reporting its financial results after the close today, but that hasn’t stopped Stifel’s James Albertine and team from releasing a cautionary report on the company.

Bloomberg News

Albertine explains his muted affection for Tesla:

We are significantly dialing back our unit growth assumptions (through 2016) as we believe [Tesla] will continue to allow demand to slightly outpace supply. We see ramping competition and looming investments as key threats, and [are] adjusting operating expense assumptions accordingly. We believe current share momentum is likely driven more by chatter around a takeout than [Tesla] fundamentals. We think a takeout is unlikely as management would likely have to remain to run the business, and well, our sense is management might not like to be managed. We also expect potential suitors may welcome some semblance of share price stabilization before negotiating price. To that end, we think [Tesla's] growth potential is more appropriately debated in the $120-150/share range per our valuation analysis, and believe EPS results today may prove underwhelming to those supporting a further move into the $200s.

Shares of Tesla have dropped 3% to $197.70 today at 10:24 a.m., while General Motors (GM) has gained 0.8% to $36.61 and Ford Motor (F) has advanced 0.4% to $15.45.

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There are 12 comments

FEBRUARY 19, 2014 11:59 A.M.

Guest wrote:

the folly of building a very expensive luxury car that runs on batteries was made perfectly clear by the CEO's obsession with his 'free supercharger stations' that now span the US from LA to NYC.

For years tesla has been saying their cars accelerate like high end sports cars, topping out over 120mph
AND they get 260 to 300 miles per charge.

Problem is: Tesla cannot do both. If you drive it like a sports car, your range drops by a factor of 4 every time you go twice as fast. To get 300 miles range you have to drive at 35mph.

If you drive at 80mph on the open road, you have to stop every TWO hours and get a FULL recharge (one hour). 160 miles / 3 hours = 53mph average speed.

The assertion that the 'free supercharger stations' was the answer to all the range issues has been put to the test, by tesla themselves.

The result? they drove 2 cars cross country, with a team of drivers round the clock, stopping only to recharge and eat.

Average speed from LA to NYC? 45 MILES PER HOUR!

yes - a $100,000 luxury car that cannot exceed an average speed cross country on the open road of 45mph!

Tesla would have been a great luxury commuter car, if they had simply been honest and stopped pretending it is also a sports car, or a regular highway sedan. But Tesla tried to have their Kate and Edith too, and now the truth is out there.

they staged a drag race against a corvette, and barely eeked out a win in the quarter mile. Problem is, the tesla had nearly reached its top speed (near 120mph), the lower priced corvette has a top speed well over 180mph!

People buy commuter cars to be green and to save money. if you buy a Nissan Leaf, for $21k after tax breaks, you WILL save money over the life of the car.

If you buy a $100,000 tesla, over the life of the car, it will equate to buying a $30,000 luxury car, and then spending $10 a gallon on fuel for its entire useful life.

Throwing money at a problem (a $40,000 battery) is NOT an ingenious breakthrough solution to a problem. Its a huge mistake.

FEBRUARY 19, 2014 12:12 P.M.

Fracker wrote:

Guest – I’ve been driving my Model S (including long trips) for over a year. It is, by far, the best car I’ve ever owned. Silent. Neck-breaking acceleration. Awesome fit and finish. No gas, or oil changes or transmission problems or coolant leaks or any of the host of other problems I’ve had with gas cars. And, best of all, my kids and their teen friends now think I’m cool! Hey, if you don’t see the awesomeness, don’t buy it. And if you shorted the stock, hope you don’t get hurt!

FEBRUARY 19, 2014 12:47 P.M.

Guest wrote:

fracker,

I have no interest in tsla on the market. It stopped being a stock when it exceeded $50 a year ago. Its been nothing but a pure speculation bubble ever since, based on whimsy, the notion that Musk is a genius like Edison (oh the irony), and that delusion that tesla is a technology breakthrough.

Tesla did not produce the first luxury EV. GM did, over 15 years ago with the EV1. They pulled it off the market because the NiMH batteries didn't have what it takes and Li Ion were too expensive and dangerous. When GM cancelled the lease and took the cars back, some owners actually cried, they loved the car so much. Again: that was FIFTEEN years ago!

Nothing has changed. Small commuter cars with Li Ion batteries make economic and engineering sense.
The tesla does not. If you have to spend $100,000 for your kids to think you are cool.... that's your issue.

FEBRUARY 19, 2014 1:22 P.M.

Fracker wrote:

Guest - you wouldn't mind sharing what line of work you're in, would you? I know dealerships, oil companies, etc, are sweating this. If I were you, I wouldn't. We'll be retired and too old to drive when EVs take over. And I drove the EV1 at an event years ago. Even went to the Saturn dealership afterwards to get one. They had NO INTEREST in leasing that car (THAT was a bizarre experience. Something was weird with that whole enterprise). The EV1 was way ahead of its time. But it was like the other EVs of today: a bug-like ugly commuter cars. The Tesla is better than the best luxury cars I've owned. And the speed and range are more than enough for me. But hey, if you're not into it, don't buy it. But I think you're kind of wasting your time with these posts.

FEBRUARY 19, 2014 2:25 P.M.

Guest wrote:

Fracker,

Am I wasting my time? Interesting connection is the real Nicola Tesla was a real engineer and a real genius. He also suffered from hallucinations, and made a few mistakes that ended up sending him down a path that wasted most of his life, all of his money, and keep him from doing the things he could have done.

Ironically he died totally bankrupt, while hacks like Edison made a fortune off the ideas and hard work of other people. If one could go back and put Nicola on the right track in 1900, would that be a waste of time?

Will anyone at tesla motors snap out of this foggy delusion before its too late and the company goes bankrupt? Maybe, maybe not.

Will people stop throwing their money at tsla because they believed the hype that musk is another Jobs or Edison?

Maybe if people fall for the hype, they get what they deserve.

But I don't think putting the facts down clearly is ever a waste of time.
Some people will get it, and get to keep their shirt.

FEBRUARY 19, 2014 2:41 P.M.

Anonymous wrote:

Don't confuse the car with the stock. The car may be awesome, but the stock is horribly overvalued and will eventually decline to fair value, which is approximately $50 a share. Over the long-term, stocks always follow earnings, and Tesla's future earnings potential does not support even half of its current market value. Tesla displays all of the characteristics of a classic financial bubble. Buyer beware.

FEBRUARY 19, 2014 6:39 P.M.

leafdriver wrote:

What Guest wrote is spot on and makes a lot of sense for me. As someone who loves driving an ev (nissan leaf) for daily commute and occasionally longer distance up to 60 miles, leaf can meet 99% of my need admirably. Over the lifetime of ownership of leaf, I expect to save lot of money in fuel cost and maintenance easily offsetting somewhat higher cost (21K) of initial purchase coast when compared to a comparable gasoline car. Plus I am saving environment by not burning oil, so it's hard to beat the value proposition of a leaf.

But it's very puzzling as to why so many tesla owners are so rabid about their expensive ev. It's much more expensive than leaf, yet it's hard to see the advantages it offers, other than what I hear about it is how cool it looks (similar to dozen other luxury sedans) and how fast it accelerates. If that's what makes tesla so "cool", then most people would be much better served by buying an inexpensive muscle car like ford focus st and save tons of cash as well. At 150mph+ top speed, ford focus st will leave tesla in the dust in any sort of realistic race.

FEBRUARY 19, 2014 6:47 P.M.

guest wrote:

Tesla is only over valued if you don't know what you are looking at. Other car manufacturers are valued at what they are valued at because they don't innovate in any meaningful way. You get 3% fuel economy improvement model over model, the model design is derivative of other brands,

FEBRUARY 20, 2014 12:49 P.M.

Tim wrote:

Their current valuation puts the money invested per car sold at around a million dollars,
for cars that sell for $100,000.

At about the same valuation, are the other car companies,
who sell vastly more cars and (sometimes) actually make money on their total investment.

then the problem with the nature of the technology, batteries, which will be obsoleted by fuel cells.
You can get a 220 lb system [enginuity] that feeds magnesium wire into a small reactor that, with water at an elevated temp evolves hydrogen,

which can be fed directly into a fuel cell like toyota or hyundai's new cars have, or even into the existing internal combustion engines.
systems like these can be scaled up to any level of power, for semi-trailers, cars..
and, in the form of solid oxide fuel cells by bloom and other companies's technologies,
convert nat gas directly into electricity for stationary applications,
currently powering distribution warehouses, walmarts and others.

FEBRUARY 20, 2014 8:20 P.M.

Informed TSLA Investor wrote:

Guest, leafdriver, etc.

Understand that Tesla's competitive advantage does not rest solely in its technology, but also in its sales approach. Unlike any other auto manufacturer in the states, Tesla has the unique ability to sell direct to consumer as other manufacturers are bound by franchise laws that Tesla is not. As such, they stand to revolutionize an antiquated sales process that was developed by Henry Ford to distribute the Model T (true story).

It is Tesla's goal to first introduce their Model S to the high-end, influencer market, as was done with other innovative goods such as the color television. By doing this, they have generated perceived value while also allowing room in their production process to reduce cost in the coming years. This was always the plan of Tesla's management team. It was their mission to leverage innovative distribution techniques to reduce the cost of a high-end electric vehicle.

As for the value of their stock, keep in mind that the last 5 weeks saw it gain over 40% in value, which may be unsustainable in the short-term, but it came on the back of several significant milestones, which leads me, and most informed investors, to believe that they will exceed this level in the long term. First, in the past year, Tesla reported its first positive earnings, which is why uneducated people may perceive a negative EPS as a negative indicator. Not the case. Second, they expanded to the Chinese market with good success thus far. This market has enormous potential, which hardly needs to be explained. Third, they are on the cusp of releasing a new fully-electric SUV that will further their market share in the states.

Look, you can talk about performance all you want, but the reality of the situation is that Tesla is heavily invested in itself, retaining all earnings to better itself and continually re-develop its technologies. Keep in mind that this is the same company who delayed release of the Model S numerous times because they wanted to ensure their electronic door handles were absolutely perfect. I seriously doubt that any of the points you mentioned above, whether true or not, will go unfixed for more than a month or two. The health of a company and its differentiators should outweigh short-term, minor product issues, assuming there are any.

So with those points in mind, I will end my rant, but there are obviously more points to address including the availability of consumer data as a result of their electronic sales methods, their rapidly expanding market share, and their continually growing network of charging stations. I assume you can fill in the thoughts there.

I wish you all well,

Clay

FEBRUARY 21, 2014 5:45 A.M.

me in sd wrote:

don't get me wrong here,tesla cars are real eye candy,most of us agree.and don't worry about the stocks.a couple more fires and stocks tumble.the real problem is tesla is not a real electric car until it runs on its own power.it should say powered by battery.why doesn't tesla start working on putting generators on the rear axel and make it a front wheel drive? think about that.

FEBRUARY 23, 2014 5:30 P.M.

Anand Raj wrote:

The truth about this and other analyst downgrades is noting to do with 'growth assumptions' which are still fanciful. They all know (& they all know each other and speak to each other .. go check their social media pages as I have) .. that Tesla is planning a large capital raising next week (WKC 24/02/14). They are covering themselves off in case the market reacts badly.

The company has the worst quality of earnings I've seen for a long time. They manipulate a naïve investor base with vague plans and expectations. Frankly this sort of behaviour shouldn't be tolerated by the SEC as its tantamount to stock manipulation (albeit by the company itself rather than external investors). The auditors are asleep at the wheel as usual. The sell side analysts are mostly young and inexperienced (check their resumes on linked in if you don't believe me), with poor models and inputs coming straight out of managements imaginations.

They are a small niche car maker which a net operating margin of 6% .. they have no free cash flow ... but carry a market cap which implies they will sell around as many cars as BMW in approx. 10 years time. This is not going to happen, when investors finally realise their mistake, their capital will have disappeared. I've never seen an investor base which is so naïve invest in stock with such wild abandon.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.